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THE DISTILLERY: Big Greek picture

Jotters contemplate the Greek problem in the broader eurozone and global context, while one distils the message from the RBA governor.

The pro-European conservatives claimed victory in the Greek elections overnight. This makes many business columns in the newspapers landing on Australian doorsteps that contemplate a radical leftist triumph somewhat irrelevant. As such, The Distillery has tried to select the commentators that put this event into its broader context, which is the following: Greece is just the first of a series of tests for the eurozone and this isn’t just a problem for European institutions.

"The election is in fact the beginning of an extraordinary run of potentially market-moving events. France is also going to the polls tomorrow, and the G20 nations are meeting in Mexico on Monday and Tuesday. The US Federal Reserve's rate-setting committee meets on Wednesday US time, and European finance ministers meet on Thursday and Friday, before a scheduled EU leader's meeting on June 29 and June 29. The credit rating agency Moody's is also preparing sweeping downgrades of the world's biggest banks that could be announced at any time.”

The Australian Financial Review’s Matthew Drummond reminds readers that it was just a minute ago that we were talking about Spain and the inadequacy of the latest effort to correct its fiscal house.

"Europe’s offer of up to €100 billion ($124 billion) to bail out Spain’s banks has failed to convince markets, as shown by the yield on 10-year Spanish bonds rising last week, to a June 17 peak of 6.97 per cent. A full-scale bailout of Spain would stretch the eurozone’s resources and could be just as damaging to the zone’s long-term integrity as a return to the drachma by Greece. All the attention given to putting out economic fires in Greece and Spain tends to push to the side the key problems in Europe that must be resolved for the crisis to be overcome – a slow-growing periphery and faster-growing core that creates destabilising current account deficits and surpluses, plus the fundamental flaw of a monetary union without a base of fiscal union."

The Australian Financial Review’s economics editor Alan Mitchell asks what the consequences of another financial crisis, this time from Europe, would be for Asia.

"Well, for a start, there would be a rapid deleveraging by European banks as they moved to protect their capital adequacy ratios and solvency against the potential surge of defaults. The European banks are important lenders to Asia, including to the region’s banks. According to the International Monetary Fund, the banking sectors of Australia, Hong Kong, South Korea, New Zealand, Singapore, and Taiwan are the most dependent on European banks in the region. European deleveraging, therefore, could affect the region’s credit supply both directly and indirectly through a reduction in funding for the banks. China’s liabilities are smaller relative to the size of the economy, as are the liabilities of India and the other Association of South-East Asian Nations economies. But the impact of European deleveraging would be spread more widely across the region via the financial centres of Hong Kong and Singapore.”

And The Australian Financial Review's Robert Guy argues that attention will shift at some stage to the US Federal Reserve, led by chairman Ben Bernanke.

"While Fed policymakers appear divided over the need for additional stimulus for the world’s largest economy, there are some economists who argue that, should the outcome of the Greek election ignite another spasm of market volatility, then the Fed may commit to more unconventional policy to help underwrite confidence. The Fed may need to offer some comfort to the markets as nothing of substance is expected from the Group of 20 meeting in Mexico this week, while the European Union summit (which is hoped to provide some unity on a way forward from the region’s problems) is not until the end of the month. While Bernanke told the joint economic committee earlier this month the Fed 'remains prepared to take action', some of his senior peers have been more forthright about the central bank having to do more."

Also on the Greek elections, The Australian’sRichard Gluyas says we should expect a hit on the Australian market if the radical leftist Syriza coalition gets up, but not a big one. Also, The Age’sAdele Ferguson says financial markets were holding their breath going into the weekend. And The Australian’sJohn Durie says the only thing that’s certain is we should prepare for a wild ride and investors that are the betting type should be seriously thinking about buying in.

In other economic matters, The Sydney Morning Herald’s economics editor Ross Gittins makes the argument that private spending on health and education will have to be added to the GST if the states are to fix their structural tax problems. Gittins also suspects in a separate piece that Australians are thinking gloomy and acting booming.

The Sydney Morning Herald’sIan Verrender speculates that Reserve Bank of Australia governor Glenn Stevens has lost his touch with the Australian public. Meanwhile, The Age’s economics editor Tim Colebatch says that Stevens’ message to the Australian economy is crystal clear – reform, competitiveness and productivity.

The Age’sMichael West says federal and state governments might find it difficult to consolidate popularity with rising electricity prices.

And finally, The Australian’s economics editor David Uren ponders on a question from Senator Mathias Cormann about whether Australian banks are moving ahead of the rest of the world in terms of capital levels.

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